Black and Buono Blog

In March 2009, the Obama administration launched the Home Affordable Modification Program (HAMP) which promised to keep 3-4 million struggling families in their home. To date, the HAMP program actually helped about half a million. Treasury Secretary Timothy Geithner has acquiesced the program will not meet the numbers promised.

On March 16, 2011, the Congressional Oversight Panel (COP) released its final report.

Within the report released December 14, 2010, the COP reported, “In April 2010, in its most recent report on Treasury’s foreclosure prevention programs, the Panel raised serious concerns about the timeliness, accountability, and sustainability of Treasury’s efforts. The Panel also noted “It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble…. Treasury is still struggling to get its foreclosure programs off the ground as the crisis continues unabated.”

The report’s conclusion of the success of the HAMP was brutal yet honest. “The Panel now estimates that HAMP will prevent only 700,000 to 800,000foreclosures – far fewer than the 3 to 4 million foreclosures initially promised, and vastly fewer than the 8 to 13 million foreclosures expected by 2012.”

“In particular, banks typically hire loan servicers to handle the day-to-day management of a mortgage loan, and the servicer’s interests may at times sharply conflict with those of lenders and borrowers.”

“For example, although lenders suffer significant losses in foreclosures, the loaning institution can turn a substantial profit from foreclosure-related fees. As such, it may be in the bank’s interest to move a delinquent loan to foreclosure as soon as possible.”

“Another major obstacle is that many borrowers have second mortgages from lenders who could profit by blocking the modification of a first mortgage. Therefore, HAMP’s straightforward plan to encourage modifications has proven ineffective in practice.”

The report provides an answer to why most HAMP applicants have had the same paperwork requested several times by the same lender during their loan modification approval process without reasonable explanation.

The COP report concludes that the real problem with the HAMP approval process may have been that “Treasury has also failed to hold lending banks accountable when they have repeatedly lost borrower paperwork or when they have refused to perform loan modifications.”

The Panel communicated had several more concerns and made suggestions to the Treasury for improvements. This feedback was ignored. COP concluded, “many billions of dollars set aside for foreclosure mitigation may be left unused. As a result, an untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time.”

The COP offers now that at least there should be learning from mistakes in developing any further programs. “Future policymakers should be mindful that the incentives of mortgage lenders are different from those of the government, and design any foreclosure mitigation program with that reality in mind.”

Truer words could not have been spoken by the COP. Those that work in housing related industries do understand the problem from the perspective of real world everyday business workings unlike those who are making policy in Washington D.C.

The fact is that the federal government penalizes anylender that actually agrees to reduce a borrower’s principal amount or even lower their interest rate. In the past, when a financial institution purchased a mortgage on the secondary market and modified the loan, the homeowner was taxed on the debt that was forgiven, and the financial institution was taxed on the difference between the purchase price of the loan and the new modified face amount. Because of this, mortgages were rarely, if ever, modified.

Because of the housing crisis, the tax on homeowners was eliminated, but the tax on the lender was left untouched. This has become a very real deterrent to modification, and almost half of all mortgages modified since 2005 have re-defaulted within a year of modification.

It only stands to reason that if this tax is eliminated, the number of modifications will increase, and the number of foreclosures will decrease.

In reality, those institutions providing loans really don’t want to take over the titles homes. They would much prefer to figure out a way to keep people in their homes and get the loan performing again. This takes a lot of time and personal attention however, which larger loan institutions simply cannot handle. Large banks and lenders do not have the resources to meet with each homeowner and evaluate their ability to pay. People in trouble need to work with individuals who specialize in this process. There is a difference between homeowners that can actually afford to stay in their homes and those that cannot.

Original article written By Brenda Krueger Huffman-and can be read at AXcess News